By Mary Ann Beyster, president of the Foundation of Enterprise Development
In 2016, the Foundation for Enterprise Development (FED) embarked on a landscape study to evaluate how the evolving field of “impact investing” has a place to support and advance employee-owned enterprises. Impact investing is typically defined as investments in products, services and companies that generate a positive social and environmental impact, as well as a market return for investors (e.g., foundations, organizations, individuals). Market size of impact investing is hard to define, but Global Impact Investing Network reports from their annual survey that there are thousands of investors, hundreds of funds, and tens of billions of dollars committed to impact investing. Returns range from below-market-rate returns, in line with an investor’s strategic objectives, or market-competitive and market-beating returns.1
We took a step back to familiarize ourselves with the impact-investing landscape and explored how the evolution of impact investing is considering the well-being of workers in terms of good jobs and good incomes, and economic prosperity in terms of community development, resilience, and innovation. This landscape analysis aimed to learn from players in the impact investing field, such as current impact investors, peer and large foundations, and impact investment fund managers. We spoke with more than 25 subject matter experts, read reports issued by major foundations and impact investing thought leaders, and attended a major industry conference. We also co-sponsored a one-day symposium with The Democracy Collaborative at Rutgers University, attended by representatives from both the employee ownership investing and impact investing communities.
In summary, I am encouraged to see the emergence of employee ownership in impact investing. Investing in the worker-cooperative model – one of the many forms of broad-based employee ownership – was found to be the most defined with fixed income vehicles through direct investments, investor notes, and Community Development Financial Institutions (CDFI). Out of roughly 800 CDFIs in the U.S., there are six CDFIs where worker cooperatives are one focus area. These are Capital Impact, Commonwealth Revolving Fund, Cooperative Fund of New England, Local Enterprise Assistance Fund, Shared Capital Cooperatives, and The Working World. These CDFIs and associated intermediaries have the support of a strong network of organizations, such as the Beyster Institute, providing technical assistance for start-ups and conversions into worker cooperatives and all forms of employee-owned enterprises.
We also found two private-equity funds focused on a variety of employee stock ownership plan transactions – Mosaic Capital Partners and Long Point Capital. In addition, there are public-index vehicles that, while not specifically focused on meaningful employee ownership, incorporate broader themes of ownership, fairness, good jobs, and good incomes.
Impact investment in employee-owned businesses is currently limited. However, there is progress in employee ownership that holds great promise for the future, especially in light of discussions of income inequality, “high-road companies,” and job retention, quality, and creation. Foundations and other impact investors have started to focus in these areas via direct and indirect (fund) investing as an extension of their interest in job creation and economic development.
Also important is the so called “Silver Tsunami,” in which it is expected that more than four million companies owned by baby boomers will transfer ownership, potentially resulting in more than 210,000 businesses being sold or dissolved every year until 20302, thus giving a new opportunity for capital to support conversions into employee ownership.
Details of our findings and other sources of information will be available in a longer report to be co-published by the The Democracy Collaborative in collaboration with the Beyster Institute and Rutgers University in late Spring 2017.
1 What you need to know about impact investing.” 2015 Annual Survey, Global Impact Investing Network
2 Roth, D. (2016). “Where’s the Business Selling ‘Tsunami.” M&A Source.